Managing Information Systems and Technology Investments

1
Chapter 10

• Managing Information Systems and Technology
  Investments

2
Agenda

• Investment issues
• Evaluating IS/IT investment
• Setting priorities for applications
• Benefit management
• IT service charging

3
Investment Issues

• Justification evaluation of IS/IT in terms of
  benefits
• Determining the priority in terms of benefits
• Realization of benefits
• Risk assessment

4
Evaluating IS/IT Investment

• Types of IS
• Types of benefits
• Relationship of IS benefits
• IS financial benefits

5
Types of IS

• Substitute for efficiency (do thing right)
• Complementary for effectiveness (do right thing)
• Innovative for competitive edge

6
Types of Benefits

• Cost/benefit analysis
• Value linking improvement in business
  performance not cost saving
• Value acceleration time dependency of costs and
  benefits in other dept. of system improvement
• Value restructuring productivity resulting from
  organizational change change of job roles
• Innovation evaluation new business practice
  levered from IS/IT

7
Relationship of IS Benefits - I

• High potential (innovative) cost/benefit, value
  linking, value acceleration, value restructuring,
  innovation evaluation)
• Strategic (innovative complementary)
  cost/benefit, value linking, value acceleration,
  value restructuring

8
Relationship of IS Benefits - II

• Key operational (complementary substitute)
  cost/benefit, value linking, value acceleration
• Support (substitute) cost/benefit, value
  linking, value acceleration

9
IS Financial Benefits - I

• High Potential fund RD exploring potential
  value cost (risk money)
• Strategic enable achievement of business
  objectives via explicit critical success factors
  (low)

10
IS Financial Benefits - II

• Key operational disadvantage/risk if it is not
  done (critical failure factors) quantified
  performance improvement (medium)
• Support net cost reduction through quantified
  saving (high)

11
Setting Priorities for Applications

• Assessment factors
• Objectives (critical success factors)
• Benefits (tangible intangible)
• Resources (financial, technology human)
• Risks (time, size, duration, technology, user
  expectation availability)

12
Benefit Management

• Objectives Organizing and managing business
  activities to realize the potential benefit
• Process
• Identify and structuring of benefits
• Planning benefits realization (business
  improvement by stakeholders)
• Executing the benefits realization plan
• Evaluating and reviewing results
• Potential for future benefits

13
Risk Management

• Types of IS failure
• Success factors of IS
• Success factors IS
• Types of risk

14
Types of IS Failure

• Business environment
• Organizational
• User
• Data
• Technical

15
Success Factors of IS

• Time
• Quality or benefits
• Cost

16
Success Factors Application

• Strategic time (h), quality (m), cost (l)
• Key operational time (m), quality (h), cost (m)
• Support time (l), quality (m), cost (h)

17
Types of Risk

• People management, user, technical,
  communication
• Size person-years
• Project control time, quality and cost
• Complexity of system business functions
• Novelty business change technical solution
• Stability of requirement

18
IT Service Charging

• Types of service charging
• Service charging and IS

19
Types of IT Service Charging

• Service center
• Cost center
• Profit center
• Hybrid center

20
Service Center

• Pros
• Stimulate experimentation
• Avoid conflict
• Promote use of service
• Cons
• Uneconomic usage
• No accountability
• Excessive demand
• No priority setting

21
Cost Center

• Pros
• Justify request
• Control on IS/IT
• User aware of costs
• Enable priority setting
• Cons
• Deter use of IT
• Focus on cost not benefit
• Unsatisfactory in practice

22
Profit Center

• Pros
• IS/IT controls its costs
• IS/IT becomes proactive
• Encourage user decision making
• Cons
• User may go external
• Create under-used IS/IT resources
• IS/IT specialists in profitable work

23
Hybrid Center

• Pros
• Allow different stages of IS/IT development
• Accommodate innovation new technology
• Pricing can be used as a policy to achieve
  strategy
• Cons
• Confusing to user
• Complex accounting system
• Incomplete control of IS/IT resource
• Need continuous review of charging policy
• Conflict in IS/IT department

24
Service Charging and IS

• Service center (no charge out leading edge
  high potential
• Cost center (average cost scarce resource)
  support
• Cost center (standard cost monopoly) key
  operational
• Profit center (market price free market)
  support high potential
• Hybrid center (flexible centrally planned)
  strategic and potential

25
Points to Remember

• Investment issues
• Evaluating IS/IT investment
• Setting priorities for applications
• Benefit management
• IT service charging